Apple is raising $1 billion in debt in Switzerland at insanely low rates, even though it has over $140 billion in offshore cash. Here's why.

AP
Apple is planning its first Swiss franc bond sale on Tuesday, which could raise up to $1 billion as it looks to take advantage of Europe's record low interest rates to pay for share buybacks and higher dividends for its shareholders.

Europe's rolling economic crisis has forced the European Central Bank (ECB) to ease its policy stance markedly over the past year. The central bank has started purchasing asset-backed securities and covered bonds, lowered interest rates (including dropping its interest rate on deposits into negative territory) and is now poised to begin a full-scale quantitative easing programme next month.

Swiss government bond yields by maturity.SIX Swiss Exchange
The consequence of this has been to sharply lower borrowing costs in the region, especially for perceived safe haven governments and large corporations. The yields that Apple is offering are only slightly above those enjoyed by the Swiss government, which can currently borrow at -0.07% over 10 years.

According to a call with shareholders earlier this month, Apple plans to use the money raised to help fund its $130 billion capital return programme including buying back shares and paying out dividends to shareholders.

This may seem an odd decision given its huge existing cash pile, but there is logic to the move.

If the company decided to use overseas cash to fund its share purchases or business activities would find itself facing a bill of up to 35% of whatever it brings back. Raising capital in the form of debt, however, attracts no such bill.